The Baby Bells Scramble for Europe

Published: December 10, 1989

(Page 2 of 4)

Investing in foreign cable systems allows the regional companies to gain experience in combining cable and telephone services. The cable contracts in Britain allow companies to provide telephone and television services over the same networks. And the Baby Bells plan to install fiber-optic cable, which can carry both telephone and video signals, in some European homes.

Regional Bell executives stress that their cable innovations are only one of the technologies they are trying out in Europe that they are forbidden from introducing in the United States. Many Bell companies plan to offer information services in Europe that they are restricted from offering at home. Although the United States has the world's most advanced telecommunications service today, they say, Europe could soon leap ahead. ''The United States does run the risk of losing some of our capability to other countries if we are kept out of these markets,'' said Edgar Brown Jr., president of Bell Atlantic International-Europe.

The Baby Bells also see a wealth of business opportunities in the Soviet Union and Eastern European countries like East Germany, Hungary, and Poland, where dramatic political and economic reforms are being introduced. The companies want to participate in the overhaul of their antiquated telephone systems in exchange for sharing in the operation of, and the profits from, the new telephone networks.

Despite the unprecedented liberalization of Europe's telecommunications markets, many barriers remain. Europe continues to have local telephone monopolies that are traditionally owned by the governments, providing them with strong revenues. Few countries allow private companies to provide plain voice telephone services, as the Bells provide in the United States. Eastern Europe presents the additional problem of repatriating profits where currencies are not convertible.

The Baby Bells' success throughout Europe will depend on how well they manage a complicated web of joint ventures and partnerships with foreign companies. Strategic alliances are the standard mode of operating overseas. The regional companies need the infrastructure, marketing, distribution and regulatory clout of their foreign partners as much as the partners need the Baby Bells' technical expertise.

''Managing joint ventures from across the ocean is a difficult task because the partners all have different objectives and functions, there are cultural and language barriers and the physical separation,'' said David Wenner, a senior partner and consultant at McKinsey & Company. Half of all the joint ventures American companies form abroad eventually fall apart, he said, adding, ''I am not saying it's impossible, but it takes close communications and understanding.'' The American telephone company wants to increase shareholder value; the European government wants an infusion of new technology and competition to benefit consumers; and European companies want to secure their roles in changing markets, he explained.

Pactel won the German cellular license only by conducting delicate negotiations with the Government and affiliating with a plethora of German companies. It will be a tough enterprise to manage, said C. Lee Cox, a Pactel group vice president, ''but the rewards are well worth it.'' PACIFIC TELESIS A Triumph in West Germany

A consortium including Pacific Telesis brought home one of Europe's biggest prizes last week: a license to build the first private cellular telephone system in West Germany. The group plans to build a digital system to compete with the overloaded, outdated network run by the Bundespost, the national telephone and mail company. Analysts say the contract - in a prosperous, densely populated market ideal for cellular services - could be worth about $6 billion in revenues over 20 years. No wonder that five of the other six regional Bell companies also bid. The Pacific Telesis team is headed by Mannesmann A.G., a West German engineering and steel company.

Pacific Telesis, serving California and Nevada with headquarters in San Francisco, has been one of the most aggressive Baby Bells overseas. Besides cellular, the company has invested heavily in wireless communications, cable television and information services.

In Britain, Pacific Telesis has acquired interests in three cable television companies - East London Telecommunications Ltd., Peterborough Cablevision and Norwich Cablevision - that together cover regions of 750,000 homes. They plan to test a new telephone service to businesses and homes over their cable television lines.

As part of a consortium that includes British Aerospace, Pacific Telesis is competing for a license from the British Government to build a personal communications network. Personal communications is an innovative technology that would use radio waves to provide wireless, digital telephone and information services.

Pactel also is looking at wireless telephone opportunities - cellular, paging services or personal communications - that may arise as Spain, Italy, and West Germany open their telecommunications industries to competition.